Market Still Lacking Some Conviction On Future FinTech Group Inc. (NASDAQ:FTFT)

You may think that with a price-to-sales (or "P/S") ratio of 0.7x Future FinTech Group Inc. (NASDAQ:FTFT) is a stock worth checking out, seeing as almost half of all the Diversified Financial companies in the United States have P/S ratios greater than 2.5x and even P/S higher than 5x aren't out of the ordinary. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

View our latest analysis for Future FinTech Group

What Does Future FinTech Group's P/S Mean For Shareholders?

For instance, Future FinTech Group's receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. Those who are bullish on Future FinTech Group will be hoping that this isn't the case so that they can pick up the stock at a lower valuation.

Although there are no analyst estimates available for Future FinTech Group, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

In order to justify its P/S ratio, Future FinTech Group would need to produce sluggish growth that's trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 9.6%. In spite of this, the company still managed to deliver immense revenue growth over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company, but investors will want to ask why it is now in decline.

This is in contrast to the rest of the industry, which is expected to grow by 1.4% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Future FinTech Group is trading at a P/S lower than the industry. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We're very surprised to see Future FinTech Group currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. It appears many are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Plus, you should also learn about these 3 warning signs we've spotted with Future FinTech Group (including 1 which is potentially serious).

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.